WOOD GROUP has agreed a deal to buy Amec Foster Wheeler in an all-share deal worth £2.225bn (US$2.72bn).
The merged company will become Europe’s biggest oil services firm, employing 64,000 staff. Amec Foster Wheeler shareholders will receive 0.75 Wood Group shares for each share they hold. This amounts to a value of £5.64/share, a 28.7% premium on Amec Foster Wheeler’s average share price in the 30 days leading up to the announcement of the takeover. Current Amec Foster Wheeler shareholders will hold around 44% of the combined company.
Both boards of directors have unanimously recommended the transaction. Wood Group chairman Ian Marchant will remain as chairman of the merged group, alongside Robin Watson as CEO and David Kemp, CFO. Four members of the current Amec Foster Wheeler board will join the merged board as non-executive directors, while Roy Franklin, currently a non-executive director at Amec Foster Wheeler, will join as deputy chairman and senior independent director.
Wood Group says that the combined firm will achieve cost synergies of around £110m/y, and create further revenue growth.
“The combination extends the scale and scope of our services, deepens our existing customer relationships, facilitates further development of our technology-enabled solutions and broadens our end market, geographic and customer exposure,” said Marchant. “The combination will create an asset-light, largely reimbursable business of greater scale enhanced capability, diversified across the oil and gas, chemicals, renewables, environment and infrastructure and mining segments,”
Amec Foster Wheeler was created in 2014, when Amec bought Foster Wheeler for US$3.3bn. Since then, however, like many contractors working in the oil and gas industry, the company has struggled following the collapse of the oil price. In its 2016 trading update on 13 March, Amec Foster Wheeler said that revenue dropped 8% compared to 2015, which it blamed on “continuing weakness” in the oil and gas industry.
Analysts say that given the current market conditions, the price agreed is fair.
“The implicit price is ten times consensus estimate earnings for this year for Amec. That’s bang in line for historic trading average and most would say that’s a perfectly reasonable price to pay,” James Hubbard, an analyst at Numis Securities in London, told Bloomberg.
Amec Foster Wheeler had been due to launch a £500m rights issue on 21 March, however, following the takeover deal, this has now been suspended. The company will still proceed with plans to sell various non-core assets, including the sale, announced on 2 March, of its core boiler business to Sumitomo Heavy Industries for £137m, and of its nuclear operations, for which the company says it has received a high level of interest.
Consolidation is often seen as a solution to struggling markets and Amec Foster Wheeler and Wood Group are not the first oil services contractors in recent times to consider the option. Halliburton and Baker Hughes cancelled a US$35bn merger in 2016 after resistance from competition authorities. Baker Hughes later merged with GE’s oil and gas unit.
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